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Tuesday, May 13, 2014

A Threat to Family Farms: Medicaid Estate Recovery

There is a big threat out there
to the survival of family farms. No, it’s not taxes. Not anymore. The threat is
the potential loss of farms due to uninsured care costs incurred by aging
farm owners.

Like many areas of the
country, Central and Northeastern Pennsylvania were largely built on the sweat and perseverance
of the owner/operators of small family farms. These farmers epitomize the
American values of hard work, running your own business, providing for your
family through all kinds of adversity, loving the land, and passing all these
virtues along to your children.

Now, long-term care costs, combined with government’s Medicaid qualification rules and Estate Recovery program, are working to destroy the family farm as the heartbeat of our American economy and our culture.

Farm Owners are Aging

According to the Federal
Government there are 2.2 million farms in America. Most of those farms (87%)
are owned and operated by individuals or families. These owners are an aging group.
Among principal farm operators 33% are
age 65 and older. (See, USDA 2012
AgCensus).

If we value family farms,
we need to do what we can to foster their transition to the next generation. But
the aging of our farm owners/operators makes it increasingly unlikely that the small
family farm will be allowed to stay in the family.

Death Taxes on Family Farms
have been largely eliminated

Death taxes are not the
problem. In recent years, the potential for the imposition of significant federal and state transfer and inheritance taxes has been greatly reduced by changes in the law. The
Federal estate tax exclusion amount is $5,340,000 in 2014 and most family farms
are well below that threshold.

Long-Term Care Costs Loom
Large for Aging Farmers

While death tax concerns have diminished, many of Pennsylvania’s aging small farm owners
are threatened by the specter of uninsured care costs. As people live
longer, their care needs tend to grow until they can overwhelm family caregivers. Even
if a care-recipient is able to remain at home, supplemental paid care is often needed.
And the likelihood grows that the farmer’s modest life savings will be used up
paying for that care.

Unlike acute health care needs, the cost of long-term care,
whether it is received at home, in assisted living, or in a nursing home, is
typically not covered by Medicare or private insurance. It is expensive and can
quickly deplete a small farm owners modest financial resources.

When the farm owner’s savings are gone, he or she may qualify for Medicaid help to pay for required care. Medicaid is the safety net program that can pay long-term care costs for needy seniors. But the Medicaid program has rules and limits
that can prevent the small farmer from qualifying.

But if the aging owner keeps the farm and draws on Medicaid benefits
to pay for long-term care, the farm property will be subject to a government Medicaid
Estate Recovery claim at death.

For
example, take the hypothetical case of Bob, a widower age 75, who owns a small
family farm in LycomingCounty, Pennsylvania. His son, Sam, has sacrificed and helped
his father run the farm for the past 30 years. Bob repeatedly promised Sam
that the farm would someday be his. In fulfillment of this promise, In March
of 2012, Bob deeded the farm to Sam.

In 2014,
Bob suffers a massive stroke and is confined to a nursing home. His
limited Medicare coverage quickly runs out. Over the following two years, Bob pays all of
his savings to the nursing home. Then he is out of money and needs to
apply for Medicaid, the government program that assists nursing home residents
who can no longer pay for their care.

As a
result of federal and state Medicaid regulations, Bob will be ineligible for
Medicaid because he gave the farm to his son within the prior five years.

Sam can
give the farm back to his father to undo this penalty. This will allow Bob to
qualify for Medicaid payment of his cost of care. But it also means that the
farm will be subject to Medicaid Estate Recovery reimbursement when Bob dies.

The
Medicaid rules effectively force the farm to be sold either during Bob's life
or after his death. This means that the family farm will be gone and Sam will lose the fruits of his
thirty years of hard work.

Bottom Line: Plan Ahead for Long-Term Care

Our federal and state legislators have acted to protect family
farms from death taxes. But they have enacted laws like the Medicaid transfer penalty
and estate recovery that effectively impose a “long-term care tax” which can
and do force family farms to be sold. This long-term care tax is not going away
any time soon. Families need to plan for it.

The bottom line: For aging farmers who want to keep their farms in their families it’s the cost of long term care
rather than death taxes that usually needs be the focus of legal planning.

Expert long-term care planning, especially when implemented more than 5 years
before the need for care arises, can help ensure that the farm stays in the
family.

1 comment:

It sounds like we need to get more kids into farming. I know we need more kids in technology and math and science too. Maybe we just need to get our kids more interested in learning and teach them right. http://www.rigaziolaw.com/areas-of-practice/

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About Me

I am a Pennsylvania lawyer with over 35 years experience in estate planning and elder law. I was selected by US News Best Lawyers® as its Lawyer of the Year in Elder Law for 2014 for the Harrisburg, Pennsylvania metropolitan region.
I am of counsel to Marshall, Parker and Weber, a law firm which has offices in Williamsport, Jersey Shore, Wilkes-Barre and Scranton, Pennsylvania. I am past President and a founder of PAELA (the Pennsylvania Association of Elder Law Attorneys). However, the views expressed on this site are my own and not those of PAELA or of Marshall, Parker and Weber.
Most importantly I am a husband, father and grandfather.